An automated trading system, also referred to as a mechanical trading system, is a set of trading rules, which will give you your entry points and your exit points automatically. The basis for exit and entry points is generally based upon moving averages, oscillators, and any additional technical indicators.
The automated trading system will also search for exact patterns of pricing, and it will also look for proximity of market key price levels. Usually, you would want your automated trading system to use a mixture of the above mentioned indicators. The following would be a good example to set our automated trading system for: We would want the automated trading system to buy if the 20 period moving average crosses over a 50 period moving average and the stochastic indicator is fewer than 20.
Once your list of rules is coded into a full system, you instruct your trading platform to trade the system on an automated basis.

The system will from this point on, automatically place all of the buy / sell orders into the markets.
The point to using an automated trading system is to try and minimize human emotion during the trading process. This is a very important notion. Traders may never realize their full potential for success if they trade too often with emotion. The beauty is, by using an automated trading system; you will not get caught up with emotion.

An automated trading system will enable you to remove guesswork, personal interpretation gut feeling, instinct, and emotions from trading. Two of the biggest problem emotions, fear and greed, will also be reduced. Non-automated trading is heavily influenced by fear and greed. The majority of systems can be categorized into any of the following three; trade with the trend, against the trend, or on a breakout.
People, who trade by using Trend Following, are people who are most concerned with the market movement. Especially strong market movement which can go one way or the other. Once a pattern is recognized in the market trend a satisfactory entry point must be located. The entry point has to be able to take advantage of the heavy market trend. Fading is the opposite of Trend Following. People who use Fading, also known as Counter Trend trading, try and predict when a strong trend is going to end.

They look for an entry point to best exploit the market when they believe the end of the trend will happen. Breakout trades look for prices to move out beyond a certain range, i. if the market trades beyond the highest of the maximum high of the last 20 bars, and then buy. Positions can also be taken if prices are breaking out of a particular chart formation, an example could be a triangle.
They can be designed to day trade, say on 1, 3, 5 or 15 minute charts, swing trade on say 60 minute or daily based charts, or trade long term on say daily or weekly based charts.
Day Trading is where traders look to make quick profits from the small market moves that occur during the day. They never hold positions overnight. Swing or Short Term Trading is where traders take a position in the market and look to hold this position for several days in order to make a profit from short term market movements. Long Term Trading is where traders take a position in the market and look to hold it for weeks, months or maybe even years.

You should always include risk management in any type of developed trading system. For example, you should have some sort of profit target or stop loss strategy. Money management, trade management, and contracts traded in relation to the account size are also things which need to be considered when it comes to a sound risk management plan.
A person who wishes to trade the markets with an automated trading system has 3 choices, available to them. They can develop a trading system themselves, have an expert code the system for them, or purchase an existing trading system. Developing a profitable trading system yourself is by no means an easy task. It requires a great deal of understanding with regard to the indicators, the various parameters, and how they all interact with each other.
A person who wishes to trade the markets with an automated trading system has 3 choices, available to them. They can develop a trading system themselves, have an expert code the system for them, or purchase an existing trading system. Developing a profitable trading system yourself is by no means an easy task.

It requires a great deal of understanding with regard to the indicators, the various parameters, and how they all interact with each other.
The second way to create an automated trading system would rely on the skills of a professional computer programmer. You would need to document the trading rules and present it as a written format to the computer programmer. Your automated trading system would then be created by the computer programmer based upon the documentation you provided. The only downfall of creating an automated trading system this way is the large expense.
The final available option to you to get an automated trading system is to purchase one which is already widely available. However, this too brings its own set of problems. Most system developers make bold statements. They claim their automated trading system is the most superior.